Texas Commercial Paper

Front 1

Two types of instruments:

Back 1

1. Note
2. Draft

Front 2

Note

Back 2

Promise to pay
-two parties: maker and payee

Front 3

Draft

Back 3

Order to pay
-three parties: drawer, drawee, and payee
Check

Front 4

Drawer

Back 4

Person ordering payment

Front 5

Drawee

Back 5

Person to make the payment
(check context-payor bank)

Front 6

Payee

Back 6

Person to receive the payment

Front 7

Meaning of negotiability:

Back 7

refers to the form of the instrument
-determined at time of issuance

Front 8

8 Elements of Negotiability:

Back 8

1. In writing
2. Signed by maker or drawer
3. Unconditional promise to pay
4. Fixed amount
5. In money
6. No other undertaking or instruction
7. Payable on demand or at a definate time
8. Contains words of negotiability

Front 9

1st Element of Negotiability:

Back 9

In writing

Front 10

2nd Element of Negotiability:

Back 10

Signed by maker or drawer

Front 11

3rd Element of Negotiability

Back 11

Unconditional promise or order to pay

Front 12

4th Element of Negotiability

Back 12

Fixed Amount

Front 13

5th Element of Negotiability

Back 13

In money

Front 14

6th Element of Negotiability

Back 14

No other undertaking or instruction

Front 15

7th Element of Negotiability

Back 15

Payable on demand or at a definate time

Front 16

8th Element of Negotiability

Back 16

Contains words of negotiability

Front 17

Elements of Negotiability:
In writing

Back 17

no requirement what it is to be written with or written on

Front 18

Elements of Negotiability:
Signed by Maker or Drawer

Back 18

Any symbol executed or adopted by a party with present intent to authenticate a writing

Front 19

Elements of Negotiability:
Unconditional promise or order to pay

Back 19

Presumed

Front 20

Items that make a promise or order conditional (and thus not negotiable)

Back 20

1. Express condition to payment
2. Promise or order "subject to" or "governed by" another writing or record
3. Incorporation by reference

Front 21

Items that do not make a promise or order conditional

Back 21

1. Statement of consideration
2. Reference to another record/writing ("as per" or "in accordance with")
3. Incorporation by reference of items that would not hurt holder
4. Limitation of payment to a particular fund or source
5. Countersignature
6. Consumer Protection Language (but will prevent a holder from being a HDC)

Front 22

4th Element of Negotiability:
Fixed Amount

Back 22

Must be able to look at instrument and determine the principle amount due.

Front 23

5th Element of Negotiability:
In Money

Back 23

Cannot be payable in goods or services, authorized medium of exchange.
words vs. figures=words prevail

Front 24

6th Element of Negotiability:
No other undertaking or instruction

Back 24

Couriers without luggage
Not a full contract.

Front 25

7th Element of Negotiability:
Payable on Demand or At a definate time

Back 25

if the instrument does not state the date it is due, it is a demand instrument.
1st day of fall=ok
when uncle fred dies=not ok

Front 26

8th Element of Negotiability:
Contains words of negotiability

Back 26

Bearer language (payable to bearer, payable to the order or bearer, no payee stated, indication that possessor entitled to payment, to cash, to order of cash, not payable to ided person)
Order language (to the order)
both order and bearer language-bearer controls

Front 27

Negotiation

Back 27

transfer of negotiable instrument so transferee is a holder

Front 28

Holder Status

Back 28

1. Possession of negotiable instrument
and
2. Good title

Front 29

Good Title:
Bearer

Back 29

Good title by possession

Front 30

Good Title:
Order

Back 30

Possession plus necessary endorsements

Front 31

Special Indorsements

Back 31

Payee's signature plus designation of new person to whom instrument payable
Creates order paper

Front 32

Restrictive Indorsements

Back 32

For deposit or collection

Front 33

Identification of person to whom insturment payable (the payee)

Back 33

Intent of issuer determines

Front 34

Holders in Due Course:
Why do we care?

Back 34

Better rights than a mere holder, important when the obligor raises a defense to payment

Front 35

6 Elements of HDC Status

Back 35

1. Negotiable Instrument
2. Holder
3. Authenticity not apparently questioned
4. Holder must pay value
5. Good Faith
6. Without notice at time of instrument acquisition

Front 36

1st Element of HDC Status:

Back 36

Negotiable Instrument

Front 37

2nd Element of HDC Status:

Back 37

Holder

Front 38

3rd Element of HDC Status

Back 38

Authenticity not apparently questioned

Front 39

4th Element of HDC Status:

Back 39

Holder must pay value

Front 40

5th Element of HDC Status:

Back 40

Without notice at time of instrument acquisition

Front 41

6th Element of HDC Status:

Back 41

Good Faith

Front 42

Holder Status:

Back 42

Possession of negotiable instrument and
Good title

Front 43

Authenticity not apparently questioned:

Back 43

Instrument does not bear such evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call its authenticity into question.

Front 44

Holder must pay value:

Back 44

Must pay value for instrument to deserve special protection

Front 45

Good Faith:

Back 45

Honesty in fact (subjective)
and
Ovservance of reasonable Commercial Standards of Fair Dealing

Front 46

Without Notice at Time of Instrument Acquisition:

Back 46

ACTUAL NOTICE-subjective test +reason to know?
Later notice doesn't matter, once you get HDC status, it cannot be taken away.

Front 47

Shelter Rule:

Back 47

Transferee has rights of transferor, doesn't make you a HDC, just have the rights
Burdon of proof on person claiming HDC status

Front 48

Real Defenses:

Back 48

Infancy, Duress which voids obligation, lack of legal capacity making obligation void, illegality making obligation void, Fraud in the execution, Discharge in insolvency, omission of required consumer protection language, SOL, alteration, unauthorized signatures and forgeries

Front 49

HDC protected from:

Back 49

Personal Defenses

Front 50

HDC not protected from:

Back 50

Real Defenses

Front 51

Personal Defenses:

Back 51

Failure of consideration, breach of warranty, fraud in the inducement, payment

Front 52

Basis of contract liability:

Back 52

the person's signature

Front 53

Agent escapes personal liability if:

Back 53

1. principal identifies in instrument
and
2. Signature unambiguously shows it made on behalf of the principal

Front 54

Agent liable to a HDC (if first two elements not satisfied):

Back 54

Liable unless agent can prove that the agent had NOTICE of the representative nature of agent's signature

Front 55

Agent liable to a non-HDC (if first two elements not satisfied):

Back 55

Liable unless agent can prove that the original parties did not intend the agent to be liable.

Front 56

Special agency rule for checks

Back 56

Agent for drawer not personally liable if principal's name is on check (even if agent did not indicate agency capacity)

Front 57

If agent not authorized:

Back 57

Then it is a forgery, alleged agent is bound.

Front 58

Indorser of note or draft-Liability disclaimer allowed?

Back 58

Yes, so indorse your check, without recourse, Billy Lowry

Front 59

Indorser order of liability:

Back 59

Sue prior indorsers for payment, liable to later indorsers

Front 60

Indorser liability discharged:

Back 60

after 30 days

Front 61

Bank may pay postdated check unless customer:

Back 61

Gives bank a notice of the postdating which describes the check with reasonable certainty.

Front 62

Stop payment orders must be in:

Back 62

Writing! Oral stop payment orders are unenforceable in Texas! But bank could be nice and stop payment anyway.

Front 63

Requirements for a stop payment order writing:

Back 63

1. Dated
2. Signed
3. Describe item with certainty (account #, check #, amount)

Front 64

How long are stop payment orders valid?

Back 64

6 months, can be renewed

Front 65

Bank's defenses if it pays over a stop payment order:

Back 65

Stop payment order didn't comply with requirements, no loss-customer would have to pay the check even if payment were stopped

Front 66

Wrongful dishonor:

Back 66

Drawee (bank) dishonoring a properly payable check

Front 67

Damages for wrongful dishonor:

Back 67

The drawer may recover all damages caused by the wrongful dishonor such as the bounced check fee and expenses incurred defending prosecution for writing hot checks.

Front 68

Drawee Bank's Defenses for wrongful dishonor:

Back 68

1. Payment would overdraw the drawer's account
2. Check is more than 6 months old

Front 69

Payment in full check:

Back 69

A check on which the drawer conspiculusy indicates that cashing the check acts as payment in full of an existing obligation which is unliquidated or subject to a bona fide dispute.

Front 70

What is the effect of a payment in full check?

Back 70

The payment in full check operates as an accord and satisfaction if the payee cashes the check.

Front 71

Exceptions to the payment in full check accord and satisfaction:

Back 71

1. Payee returns the money within 90 days
2. Payee is an organizaiton and had previously notified the dreawer of a particular person or address to send payment in full checks.

Front 72

Forged Drawer's Signature
Alleged drawer:

Back 72

Is not liable

Front 73

Forged Drawer's Signature
Drawee bank must:

Back 73

Recredit alleged drawer's account as check was not properly payable unless drawee bank has a defense

Front 74

Is Bank able to pass on loss?

Back 74

No unless breach of presentment warranty

Front 75

Bank's defenses to recrediting forged drawer's account:

Back 75

1. Drawer's negligence
2. Bank Statement Rule-duty to inspect statement

Front 76

Bank Statement Rule-duty to inspect statement:

Back 76

Customer has duty to inspect bank statement and canceled checks in a timely manner. If customer does not and bank can prove a loss beyond original mistaken payment, customer precluded.

In any case, forged drawer's signatures must be reported to bank within 1 year regardless of bank's or customer's negligence.

Front 77

Repeat Offender Rule:

Back 77

If the same person is forging a series of checks, the drawer must report hte forgeries within 30 days of when the statement was available. If the drawer does not do so, the bank will not recredit the account for the subsequent forgeries by the same person.

Front 78

Imposter Rule:

Back 78

The issuer, maker, or drawer will be estopped from denying the validity of the forged instrument. The maker or drawer is deemed to have acted carelessly in issueing the check and thus to have contributed to the forgery.

Front 79

Fraudulent indorsements by employees-payees:

Back 79

If an employer entrusts an employee (or independant contracter) with responsibility with respect to an instrument and the employee make a fraudulent indorsement, the indorsement is effective. Payee is estopped to assert the forgery.

Front 80

Transfer Warranties:

Back 80

Basically a warranty of holder status